Sunday, July 20, 2008

(I originally posted the following article on The DIV-Net on July 13, 2008)

As they often say about real estate investing, one does not make money in real estate when it is sold, but when the real estate is purchased. The point in this statement is the profit is really determined based on the price paid for the real estate. In other words--don't over pay. Many real estate investors are finding this axiom true today. Well, what about stocks that are unloved by the so called investing experts?

The CXO Advisory Group website highlighted findings from a research report titled Stocks of Admired Companies and Despised Ones by Deniz Anginer, Kenneth Fisher and Meir Statman. In short, the study's authors tested whether the top companies in Fortune magazine's list of America's Most Admired Companies underperformed the companies that ranked in the bottom of the list. The following table taken from the study summarizes some of the findings.

Difference between the return of Industry-Adjusted Despised and Admiredportfolios during the ten years: April 1983 – March 2006.

"High achievers (in life and in the market) frequently step outside their comfort zone. That’s the way they learn and make progress. At the same time, they also expect to fail (more often than not), but do not see failure or mistakes they make as problems, but as educational experiences.

The natural instinct of all of us is to seek safety and shelter, unfortunately at the exact same time when we should be aggressive and risk tolerant. Those who do well in the market understand this natural human tendency and they consistently work against it when others are doing the exact opposite.

The key for today is to first understand what your comfort zone is and then take a step outside of it. Remember, the market doesn’t reward comfort and decisions that “feel” good to make. That’s the law of nature and it is true of this market like any other."

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